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Every booming company grapples with the same problem: How do you maintain momentum when you barely have time to make sure the wheels don't fly off? The difference between enterprises that flourish and those that stumble is leadership. Here's how to turn your company into a perpetual growth machine.

By Damon Darlin

May 1, 2005

(Business 2.0) – Growing Through Acquisition

The fastest way to grow? Buy another company. But be wary, because it's also the riskiest expansion strategy: Half of all corporate mergers fail. Here's how to avoid the most common pitfalls when you're acquiring another company.

Know When Corporate Culture Matters--and When It Doesn't Conflicting values can dampen growth faster than you can say AOL Time Warner. The culture of the acquired company isn't sacrosanct. Certainly, if you bought a company for its talent, leave the brainiacs alone--but that's where the hands-off policy should end. Warren Bennis, a professor at the University of Southern California's business school, suggests that execs take a good look at administrative and decision-making processes before closing the deal, because those are the areas where clashes inevitably occur. He notes that the recent Johnson & Johnson/Guidant merger went smoothly because the two companies operated so similarly that little adjustment was required. "I'm sure the stationery had to be changed," Bennis says, "but that may have been about it."

Put Your People in Power When revolutionaries take over a city, they seize the police, the media, and the schools. You have to do the equivalent, says Noel Tichy, a University of Michigan Business School professor and author of several books on leadership. Destroy institutional resistance by staffing vital management and administrative positions--particularly in HR and finance--with people who understand your goals and buy into them. Fire the people who don't catch on fast. Even touchy-feely Whole Foods Market gets tough on this subject. It routinely dumps executives of supermarket chains it acquires when they don't see eye to eye with the new management. "They may have created the business, but sometimes it's too hard for them to continue on after the merger," says Walter Robb, co-president and co-COO at Whole Foods.

Make Sure Everyone Is on the Same Page Check in frequently with key staff members to make sure they all understand the goals and are spreading the word to their people. Do this again and again. Even if you think everyone has the message, chances are you're wrong. "You need to create a collective definition of success," Bennis says.

Strip Away Barriers Buying companies gets you big, but it can also layer on the bureaucracy, and we all know how that can gum up the works. Follow the lead of Jack Welch, who made GE a model of smart growth. During his stint at the helm, Welch removed layers of management and walls between business units to create the "boundaryless company"--even as he snapped up smaller outfits. He pushed decisions down the food chain in order to flatten the organization. And he trumpeted the virtues of technology to streamline routine operations so managers could concentrate on new opportunities rather than order-processing snafus. Over the years, his moves saved GE hundreds of millions of dollars that it could then pour into new products and new acquisitions.

RESOURCES

Crossing the Chasm, by Geoffrey Moore (HarperBusiness)

Leading the Revolution, by Gary Hamel (Plume)

Taken for a Ride: How Daimler-Benz Drove Off With Chrysler, by Bill Vlasic and Bradley A. Stertz (HarperBusiness)

Growing Naturally

Your product is killer, your business plan can't lose, and every index of corporate success--from revenue to profit margin--is soaring. But don't let all the exuberance lull you into complacency. Now is the time to buckle down and exercise discipline. After all, this is precisely when one bad decision could derail your whole business. Here's how to grow from the inside.

Don't Chase Every Opportunity ... Fast growth creates new opportunities, but not all of them are worth pursuing. Keep sight of your company's core competency and make sure all expansion radiates from it. "We don't stray far from what we do very well," says Medtronic CFO Robert Ryan, whose medical devices company has seen revenue grow nearly 2,370 percent since 1990. Similarly, P.F. Chang's China Bistro, whose earnings are soaring 21 percent yearly, won't open in a new location unless it fits the chain's demographic profile. CEO Richard Federico says he'd rather miss a target than have to explain how "we lost our way and are getting back to basics."

... But Find the Right Opportunity It's tough to raise your head above the day-to-day operations of a rapidly expanding business. But you must. If you wait until your growth falters, you'll have the makings of a crisis, and it may be too late to find new ways to expand your business. That's why P.F. Chang's began planning a second chain--Pei Wei Asian Diners, offering faster service in an informal environment--only a year after launch. It's now planning a third, more upscale chain. "If you discover the model is flawed," Federico says, "you still have time to fix it."

Keep Your Employees Focused Success can be heady--and distracting. Remind your staff often where the company is headed so everyone is thinking in the same direction. "You can't have 1,400 people interpreting 'profitable growth,'" says Kathy Vrabeck, president of videogame outfit Activision Publishing, whose revenue has jumped 117 percent since 2000. Vrabeck gives everyone a list of "things that matter" to provide the guardrails. As management sage Gary Hamel likes to remind clients, "What were Hewlett and Packard thinking about in their early days? Their next oscilloscope, or the values, structures, and management of the company?"

RESOURCES

Zapp! The Lightning of Empowerment, by William Byham and Jeff Cox (Ballantine)